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Monday, January 30, 2017

Joe McAlinden, founder of McAlinden Research Partners and former chief global strategist with Morgan Stanley Investment Management, outlines the trends for energy and discusses which sectors should see the most growth under the Trump administration.

The Energy Report: Welcome, Joe. What is your outlook for oil?

Joe McAlinden: We've been bullish on oil prices and published a piece last April predicting an energy shortage. I continue to think that is where we're headed. There is a self-correcting mechanism in relatively free markets that have been operative in the U.S. As prices fell, producers that are capitalists have cut back production and shut down a lot of drilling activity. We see that in the plunge that we've had in the number of operating rigs and in the number of barrels produced in the U.S.

Meanwhile, in less free markets for energy, namely the Organization of the Petroleum Exporting Countries (OPEC) members, we have seen more and more duress in the governments that are dependent on high oil prices to maintain their governments and living standards for their citizens. And even with non-OPEC members where there's a lot of government intervention in the markets, such as Russia, the same thing has been true.

Another factor is that the financial pressures on producers basically have forced them to the negotiating table, resulting in the recent agreement to cut production that finally came out between OPEC and non-OPEC producers but really between the Saudis and the Russians as the big players. It is important. It's important psychologically because since the agreement was announced, oil prices have moved up. But it is important in the actual supply/demand balance as we look at 2017.

U.S. production has been cut way back. The non-U.S. producers have announced an agreement to cut back. And the stage is clearly set for the supply side to be getting its house in order.

TER: What about demand?

JM: On the demand side, there is a degree of price elasticity in this market. When oil prices have come down, we've seen, for example in the U.S. data, miles driven be very strong. So demand has been very positive.

With the Trump election comes the plans to implement pro-growth policies, cut taxes, reduce regulation, etc., and hopefully get growth up to 3% to 4% in GDP. That's going to be a big positive for oil demand in the U.S. Even with conservation, more efficient vehicles and the usage of natural gas for generating electricity, as well as inroads made by adding alternative energy into the picture, we still have some degree of sensitivity in crude oil demand to the GDP growth rate. So if we've had 1.5% growth on average, but the trend has been about 1.5% to 2%, and the new administration promises to raise that to between 3% and 4%, that is going to have a positive further effect on demand.

That's part of what has changed in the wake of the election in the energy picture. I am more bullish than ever on the whole energy complex, where we had been predicting $60 to $80/barrel oil, and we continue to think that is the upside target.

The other thing that's important is that this administration has outlined plans for opening up public lands to drilling, for expanding fracking and for bringing back the coal industry, all of which are going to run into tremendous pressure from environmentalists. Nonetheless, it is what's on the table, and it's what's planned.

TER: What areas have the greatest investment potential?

JM: I believe that between the rise in prices that we're beginning to see for crude oil and the plans in the U.S. for tremendous expansion of drilling activity, at this point my call is that the energy oilfield services business is poised to do even better than the energy industry overall. This is best characterized by the stocks that you would find in the VanEck Vectors Oil Services ETF (OIH), which I believe will outperform the broad energy industry, which I also like, and which is best characterized by the Energy Select Sector SPDR ETF (XLE).

I'm still bullish on oil and I think the XLE goes a lot higher, but I think the OIH goes up percentagewise a lot more. That's my view on energy.

TER: Thanks for your time, Joe.

Joe McAlinden has over 50 years of investment experience. He is the founder of McAlinden Research Partners and its parent company, Catalpa Capital Advisors. Previously, McAlinden spent more than 12 years with Morgan Stanley Investment Management, first as chief investment officer and then as chief global strategist, where he articulated the firm's investment policy and outlook. He received a bachelor's degree cum laude in economics from Rutgers University and holds the Chartered Financial Analyst designation. McAlinden has served on the board of the New York Society of Security Analysts.

Gov. John Kasich is trying once again to raise Ohio's tax rate on fracking activity in the state. But his latest budget plan, released Monday, calls for a much higher tax than he's sought in the past.

Kasich's two-year budget plan, unveiled Monday, would charge horizontal drillers in eastern Ohio a severance tax of 6.5 percent for crude oil and natural gas sold at the source -- or $3.25 per $50 barrel of oil.

Natural gas and natural gas liquids that go through processing would be assessed a 4.5 percent tax per thousand cubic feet, which would equal about 16 cents given a spot price of $3.59 in December.

Currently, Ohio charges 20 cents per barrel of oil, while the tax on natural gas is 3 cents per thousand cubic feet.

Conventional drillers in the state would continue to pay the same rates currently in place.

We received the following statement from Shawn Bennett, the Executive Vice President of the Ohio Oil and Gas Association, in response to the governor's budget plan:

Once again the Administration’s severance tax proposal is not in tune with the current market realities surrounding oil and gas production in Ohio. While this industry continues to struggle from a market downturn, an increase of any kind would stifle development even further. For the Ohioans working in every facet of this industry including those who were laid off during the downturn, the last thing this industry needs is an added barrier to impede them from providing for their families.

For his part, Kasich acknowledges that he does not expect the state legislature to approve the severance tax increase. From The Columbus Dispatch:

Kasich acknowledged the legislature again will reject his desired severance tax hike. He said he keeps proposing it for the same reason he kept introducing balanced federal budgets that didn't pass - because one day it will.

"You don't give up just because you don't get anything done," he said.

Gulfport Energy Corporation (NASDAQ:GPOR) (“Gulfport” or the “Company”) today provided an operational update for the quarter and year ended December 31, 2016. Key information includes the following:

Net production during the fourth quarter of 2016 averaged 787.0 MMcfe per day, a 7% increase over the third quarter of 2016 and a 22% increase versus the fourth quarter of 2015, averaging at the high-end of Gulfport’s previously provided fourth quarter 2016 guidance of 765 MMcfe per day to 790 MMcfe per day.

Net production during the full-year of 2016 averaged 719.8 MMcfe per day, a 31% increase over the full-year of 2015.

Realized natural gas price, before the impact of derivatives and including transportation costs, averaged $1.85 per Mcf during 2016, a $0.61 per Mcf differential to the average trade month NYMEX settled price, compared to Gulfport’s previously provided full-year of 2016 differential guidance of $0.61 to $0.66 per Mcf below NYMEX settlement prices.

Realized oil price, before the impact of derivatives and including transportation costs, averaged $38.18 per barrel during 2016, a $5.18 per barrel differential to the average WTI oil price, compared to Gulfport’s previously provided full-year of 2016 differential guidance of $5.50 to $6.50 per barrel below WTI.

Realized natural gas liquids price, before the impact of derivatives and including transportation costs, averaged $15.37 per barrel during 2016, or $0.37 per gallon, compared to Gulfport’s previously provided full-year of 2016 realization guidance of $0.25 to $0.29 per gallon.

Increased hedge position to approximately 555 MMcf per day of natural gas fixed price swaps during 2017 at an average price of $3.18 per Mcf and 346 MMcf per day of natural gas fixed price swaps during 2018 at an average price of $3.10 per Mcf.

Today, in its Order List, the Supreme Court of the United States denied certiorari in Jon D. Walker, Jr. v. Patricia J. Shondrick-Nau, Executrix of the Estate of John R. Noon and Successor Trustee of the John R. Noon Trust. Walker involved interpretation and application of the Ohio Dormant Mineral Act (R.C. § 5301.56) (the “DMA“), and was most recently decided by the Supreme Court of Ohio.

The Supreme Court of Ohio Decision

In 2012, Walker filed a complaint to have a dormant mineral interest declared abandoned pursuant to the 1989 version of the DMA (the “1989 DMA“). Prior to the filing of his complaint, certain lower courts in Ohio had held that the 1989 DMA automatically abandoned dormant mineral interests when the record revealed that none of the six “savings events” occurred from March 22, 1969 to March 22, 1992. In concluding that the dormant mineral interest was not abandoned, the Supreme Court of Ohio held that the 1989 DMA was not self-executing; instead, the 1989 DMA created only a conclusive presumption as to abandonment. The Court further held that the abandonment procedure set forth in the 2006 version of the DMA (the “2006 DMA“) applies to all claims to abandon dormant mineral interests asserted after June 30, 2006.

Wednesday, January 25, 2017

U.S. President Donald Trump signed orders on Tuesday smoothing the path for the controversial Keystone XL and Dakota Access oil pipelines in a move to expand energy infrastructure and roll back key Obama administration environmental actions.

Oil producers in Canada and North Dakota are expected to benefit from a quicker route for crude oil to U.S. Gulf Coast refiners. But going ahead with the pipelines would mark a bitter defeat for Native American tribes and climate activists, who successfully blocked the projects earlier and vowed to fight the decisions through legal action.

Trump campaigned on promises to increase domestic energy production. Before taking office he said the Dakota pipeline should be completed and that he would revive the C$8 billion ($6.1 billion) Keystone XL project, which was rejected in 2015 by then-President Barack Obama.

U.S. crude imports have fallen dramatically in recent years as domestic production has boomed, but the world's largest oil consumer still relies heavily on imports.

It didn’t take long for President Donald Trump to deliver on his energy campaign promises. Within minutes of being sworn in Friday, links to Obama’s Climate Action Plan were replaced by a smiling picture of the new president and vice president. The White House website then published “An America First Energy Plan,” which emphasizes use of domestic fossil fuels and shunning foreign oil. The plan takes aim at “burdensome regulations on our energy industry,” while embracing “the shale oil and gas revolution.”

“President Trump is committed to eliminating harmful and unnecessary policies such as the Climate Action Plan and the Waters of the U.S. rule. Lifting these restrictions will greatly help American workers, increasing wages by more than $30 billion over the next 7 years.”

Obama’s Climate Action Plan included the Clean Power Plan, the requirement that states reduce carbon emissions from power plants. The Waters of the U.S. rule outlined clarity on the smaller waterways that would be regulated under the Clean Water Act. That rule has been tied up in the courts. Response from environmentalists was quick. The climate action group 350.org said it would do everything to resist the plan.

“Trump’s energy plan is par for the course of the President’s climate denial, but it’s nonetheless alarming for the movement to keep fossil fuels in the ground,” said 350.org executive director May Boeve in a statement. “Fulfilling this plan would not only set back years of progress we’ve made towards protecting the climate, but would undoubtedly worsen the devastating impacts of the climate crisis, from rising sea levels to extreme weather.”

Fracking is poised to increase under the Trump administration, and with it will come the need for larger quantities of fracking sand.

President-elect Donald Trump is widely expected implement pro-energy exploration policies. His "America First Energy Plan" calls for making "American energy dominance a strategic economic and foreign policy goal of the United States," and the unleashing of "America's $50 trillion in untapped shale, oil, and natural gas reserves. . ." Pro-energy policies coupled with rising energy prices point to an increase in fracking. And with the growth of fracking comes the need for fracking sands.

Sand is essential to fracking. Bloomberg reports that sand "is a much greater tool in hydraulic fracking than drillers had understood it to be. Time and again, they've found that the more grit they pour into horizontal wells—seemingly regardless of how extreme the amounts have become—the more oil comes seeping out." Bloomberg cites IHS figures that show that drillers are using twice as much sand per well as they did in 2011: "The per-well increases have analysts and investors betting that the sand industry will boom again as soon as fracking activity starts to pick up even a little bit."

Torchlight Energy Resources Inc. (TRCH:NASDAQ) is one exploration company that is using larger amounts of sand. On Jan. 10, the company announced that on its Flying B Ranch #2 well in the Midland Basin in Texas, it will be performing a "significantly larger multiple-stage frac than previously employed, [utilizing] 600,000 lbs. of sand pumped at a fluid rate of 75-100 barrels per minute." Torchlight CEO John Brda said, "We have engineered a much larger frac for this second well and expect that it will maximize any production results that we encounter."

Investors are swarming to sand fracking companies. One company that has seen a huge rise in valuation is Vancouver-based Select Sands Corp. (SNS:TSX.V). Its shares have risen from CA$0.20 last winter to CA$1.62, before falling back to about CA$1.53. Its operation in Arkansas gives it a geographical advantage to supplying sand to frackers in Texas and Louisiana; most fracking sand comes from Wisconsin and Minnesota. Brien Lundin, in the Dec/Jan issue of Gold Newsletter, noted that Select Sands "has raised the funds it needs to complete its option to buy a dry plant near its flagship Sandtown silica project in Arkansas. . .the large cash infusion gives Select Sands the resources to pursue its development plans at Sandtown. The project has great merit, both as a source of industrial silica and as a potential fracking sand provider, should that market revive."

Another frack sand company garnering attention is Smart Sand Inc. (SND:NASDAQ GS). The Texas-based company has operations in Wisconsin. The company went public on Nov. 4, 2016, at $11/share; the stock is now trading around $17.

Emerge Energy Services LP (EMES:NYSE) has also seen its share of action. The Texas-based company operates plants in Texas and Wisconsin. In the last year, its shares have risen from $1.97 to $15.75, before falling back to $13.50.

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Thursday, January 19, 2017

Carrollton OH: While some industry funded groups seek to discredit the work of local citizen groups and their roles in the communities where shale gas development occurs, the reality is these groups have become a critical part of information exchange and ultimately industry accountability. Whether a formalized non-profit, a land-owner collaborative, or an informal group, citizen members realize that industry information provides only one side of the story…a corporate profit side.

Drillers and industry associations leverage professional marketers and industry funded non-profits to carefully craft messages that accentuate drilling’s financial upside potential while minimizing its downside risks to the environment, land values and local quality-of-life. Their hope is that landowners remain disconnected and act only as individuals rather than groups. This helps them hold down leasing costs, keep problems under wraps, and unfortunately support a practice of pitting neighbor against neighbor for corporate gain.

Landowners who understand that shale plays involve David and Goliath sized power plays also understand they can increase their power when they work together. Early leasing examples in the Carroll County area include collaboratives like ALOV and SURE who substantially improved landowner protections and economic terms over standard shale gas leases. Now that the boom has subsided, these same groups are moving to support landowners in resolving grievances related to royalty payments, pipeline easements, noise complaints, and other lease terms not being followed by drillers.

Most might think that local or state officials would be working to enforce lease terms and correlate complaints to find patterns worthy regulatory involvement, but unfortunately neither tends to be the case. ODNR (the State agency charged with oversight of all shale gas activities) does not engage in any lease disputes as those are considered “business relationships.” Unfortunately, their primary approach to environmental, operational, or quality-of-life complaints entails routing landowers back to drillers to “work it out” on a case by case basis. If a landowner is fortunate enough to get some relief, it often comes with a non-disclosure agreement that prevents landowners from sharing the problem or the resolution with neighbors or even the State.

Non-disclosures and the lack of consolidated reporting has become a major barrier to researchers’ ability to do long-term studies of the risks of shale gas drilling. Furthermore, Ohio and most other states do not perform proactive testing of water and air on a widespread and ongoing basis. ODNR claims they have insufficient funding to provide that level of proactive monitoring, but at the same time refuses to raise fees charged to the industry--the sole source of funding for their agency. Finally, one would think that if the industry had no concerns about the public disclosure of widespread and going testing, they would fund independent research and publish results in respected, peer-reviewed journals.

Unfortunately, history has shown all too often that the “safe practices of today” become the industrial cleanups of tomorrow. Lack of public data for water and air quality throughout shale play lifecycles (reportedly up to 100 years) leaves researchers and landowners left to fend for themselves. Local non-profits like Carroll Concerned Citizens (CCC) continue to support such efforts by educating landowners on testing best practices, encouraging them to share their results with neighbors and/or researchers, and providing academic researchers with an opportunity to directly solicit local citizen research participation.

While CCC has not funded academic studies, it does support citizen-science testing through its Water Sentinels program. This volunteer-led program has gathered hundreds of water quality results from dozens of sites around Carroll County. Data are cataloged in a centralized database that can be compared with other samples from around the State.

So whether it is a local non-profit, a landowner collaborative, or just a couple of neighbors, a line from the character Dumbledore in J.K. Rowling’s Harry Potter says it quite well, “We are only as strong as we are united, as weak as we are divided.”Connect with us on Facebook and Twitter!Follow @EnergyNewsBlog

“That is bearish for oil and a concern for [the Organization of the Petroleum Exporting Countries,” said James Williams, energy economist at WTRG Economics, pointing out that the volume of new oil per rig has climbed because of gains in efficiency.

Utica shale activity looks to be on the increase if the latest weekly update on permitting from the Ohio Department of Natural Resources is any indication.

13 permits are listed on the report for the week of January 8 to January 14, 2017. Six of those permits were issued for Belmont County wells, four for Noble County, and three for Carroll County.

The Utica rig count was back on the rise on this latest report, as well. It sits at 24, which is the highest rig count we've seen since 2015. 2,353 horizontal permits are now issued, 1,888 wells drilled, and 1,476 wells are producing.

Note: a detailed breakdown of the two-year financial and operational plan can be found in the company's January 2017 corporate presentation on slides 5 through 10. In addition, all 2017 and 2018 forecasts, projections and comparisons to prior periods do not include any contribution from assets divested or any future impacts related to adjustments to the capital structure.

2017 Financial and Operational Plan

Capital Expenditures and Drilling Activity

Rex Energy's net operational capital expenditures for 2017 are expected to be in the range of $70.0 - $80.0 million, with approximately 80% allocated to the development of the Marcellus and Upper Devonian Burkett shales in the Moraine East and Legacy Butler Operated Areas. Approximately 20% is allocated to the development of theUtica Shalein the Warrior North Area. The 2017 capital budget is expected to be funded through cash flow from operations and asset divestitures.

The company plans to run one drilling rig in its Butler Operated and Ohio Utica Warrior North Area and expects to drill 21.0 gross (11.1 net) wells, complete 26.0 gross (12.7 net) wells and place into sales 23.0 gross (11.2 net) wells. Of the 23.0 gross (11.2 net) wells scheduled to be placed into sales in 2017, only four gross (1.4 net) wells will be placed into sales in the first half of 2017, with the remaining 19.0 gross (9.8 net) wells placed into sales in the second half of 2017. The 2017 development plan in the Butler Operated and Warrior North Area is aligned with the company's HBP/HBO goals for 2017; upon completion of the 2017 development program, the majority of the company's drillable acreage will be held by production.

Stow Sentry: Company Seeks to Drill Natural Gas Well - "A proposal to drill a natural gas well on private property adjacent to Kimpton Middle School may be in the Board of Education's future to consider. David Beck of Beck Energy in Ravenna told the Board members at their Dec. 5 meeting that he is working with the Armbrusts who own 27 acres at..."

The Motley Fool: Top Gas Stocks to Buy in 2017 - "Natural gas' growing presence on the world stage demands the attention of investors. But how you buy into the fuel is the important question. Royal Dutch Shell (NYSE:RDS-A) (NYSE:RDS-B), Enterprise Products Partners (NYSE:EPD), and Rice Energy(NYSE:RICE) are three top gas stocks that could find their way onto..."

Forbes: Despite OPEC Production Cut, Another Year of Low Oil Prices is Likely - "An OPEC production cut offers oil producers hope for higher prices in 2017. But there is a dark cloud hanging over that expectation. Global storage inventories must be substantially reduced before higher oil prices can be sustained. Some of U.S. tight oil has nowhere to go but into storage because..."

Business Journal Daily: Second Lordstown Energy Plant to Be Announced Today - "Officials will formally announce plans for the construction of a second electrical generation plant along Henn Parkway during a ceremony this afternoon. “It’s a bigger investment than the first one,” Guy Coviello, vice president of government affairs at the Youngstown Warren Regional Chamber, said Tuesday. “It’s rare for a community to have..."

Press release: Rex Energy Announces Closing of Ohio Utica Warrior South Asset Sale - "Rex Energy Corporation (Nasdaq:REXX) ("Rex Energy") today announced that it has closed on the previously announced sale of its Ohio Utica Warrior South assets to Antero Resources Corporation ("Antero"). The sale of the Warrior South assets includes 14 gross wells and approximately 4,100 net acres in Guernsey, Noble and..."

WKSU: Another Round of Lease Deals in the Utica Shale Are in the Works - "Since development of the Utica Shale play began in 2010, Ohio property owners have be paid an estimated $2 billion in bonuses for signing drilling leases. After seven years, with many leases expiring, some -- but not all -- of those owners may get paid..."

The Daily Jeffersonian: Gulfport, Foundation for Appalachian Ohio Awards Grants - "The Gulfport Energy Fund at the Foundation for Appalachian Ohio announced its second round of 2016 grantees at its annual grantee celebration. Ten grant recipients received more than $50,000 in grant awards supporting projects related to environmental stewardship and health and human services. The grants supported nonprofit and public organizations in Belmont, Guernsey, Harrison, Jefferson, Monroe and..."

Bloomberg: Oil Drillers Are Expanding Again After Losing Half-Million Jobs - "The oil industry is expected to boost spending for the first time in three years after slashing almost half a million jobs globally during the downturn, according to industry consultant Graves & Co. More than three quarters of the 440,131 oil jobs eliminated..."

Daily World: Feds: Oil May Linger at Mid-$50 Range - "Federal forecasts for oil and gas prices may show a mixed bag for Acadiana over the next two years. The U.S. Energy Information Administration suggests in its January Short-Term Energy Outlook that West Texas Intermediate oil prices will average about..."

WKSU: Evolution of Cracker Project Nears an End - "The decision on whether to build a multi-billion-dollar cracker plant in eastern Ohio is expected by the end of March and key environmental permits may already be in place. The Ohio EPA issued wastewater discharge permits and a water quality certification for the Belmont County complex..."

Toward Freedom: 'The Power to Create a New World': Trump and the Climate Challenges Ahead - "The catastrophic climate change is no longer a subject for argument, at least on a mainstream level within the science community. Yet, as temperatures continue to rise, American efforts to combat global warming sadly seem to decline. President Elect Donald Trump is more concerned by the..."

Monday, January 16, 2017

A survey of oil and gas leases up for renewal in 2016 across Columbiana County shows that energy companies are still interested in developing this portion of the Utica shale, but not quite as enthusiastically as they were five years ago when these leases were first signed.

According to data provided through the Columbiana County recorder’s office, 535 oil and gas leases were listed as extended during 2016, most of them with Chesapeake Exploration LLC.

During the same period though, 612 leases in Columbiana County were released during the year and allowed to expire, according to county records.

“Lease expirations are happening daily,” observes Alan Wenger, an attorney for Harrington, Hoppe & Mitchell Ltd. who directs the law firm’s oil and gas division. “We’re now approaching the second wave, and a lot of people are watching this.”

An Ohio anti-fracking activist group has gone radio silent and appears to have dismantled after two studies it coordinated and funded failed to confirm its anti-fracking narrative. Carroll County, home to the largest number of Utica Shale wells and the first county in Ohio where fracking really started booming, has also been home to Carroll County Concerned Citizens (CCCC), a small anti-fracking activist group. Over the past few years, this group (associated with the Frack Free America National Coalition), has held monthly meetings and used its website to provide a flurry of misinformation about the oil and gas industry. But most notably, CCCC has been a hub for “volunteer recruitment” for fracking studies.

Last year, two of the studies the CCCC participated and funded yielded “disappointing” results, as a University of Cincinnati (UC) groundwater fracking study showed “no evidence for natural gas contamination”and another UC fracking study on air quality was retracted, as it exaggerated cancer risks by 725,000 percent. Both of the UC studies’ lead authors announced their findings at CCCC meetings. Since then, there have been no meetings held or scheduled in the future, and it appears there has not been any activity whatsoever since hearing this “disappointing” news.

CCCC formed in 2009, but did not start becoming active until their screening of the debunked Gasland film. Shortly after they formed, horizontal drilling and hydraulic fracturing started to boom in Carroll County, thanks to unprecedented investment in the county by Chesapeake Energy, which at the time predicted that Ohio’s shale formation could be game-changer, and it has been.

Chesapeake drilled its first shale well in 2011 but really started picking up steam into 2012. By 2013, Ohio hit a landmark of 1,000 permits for Utica shale drilling, with Carroll County doubling any other county in the state at 352 permits. Chesapeake Energy remains the No. 1 driller in Ohio’s Utica Shale today with 1,473 producing Utica wells, 300 wells that have been drilled and another 458 that have been permitted. For a visualization of the incredible development that has taken place in Carroll County, check out this production map from Drilling Edge.

During the same period of time, Carroll County Concerned Citizens have hosted misinformation machine FracTracker and numerous other activists, held a Data Collection Day and participated in study after study attempting to link to air and water issues to drilling (to no avail). Case-in-point, take a look at the timeline of CCCC’s meetings and the content of those meetings:

After spending years chasing its tails trying to find a solution in search of problem, it appears that CCCC have given up altogether as there has been zero activity from this group in months.

In fact, over the past year the group has not posted any new content on its website, held meetings, or recruited volunteers for fracking studies. Perhaps it’s because the people who live and work in Carroll County are keenly aware that the oil and gas industry has brought incredible benefits to their community while still preserving the breathtaking environment in their rural area. Or, perhaps the uneducated and skeptical small group of “concerned citizens” that have been the target of an activist roadshow of fearmongering have now had their concerns put to bed, as the studies they’ve supported have clearly shown fracking has not impacted groundwater or air quality in their region. In any event, the fact that this group has been radio silent after UC’s study results clearly indicates that they have given up on finding fault with fracking.

NOTE FROM THE DAILY DIGGER: We have reached out to Paul Feezel, founder of Carroll Concerned Citizens, for comment on this story. Mr. Feezel stated that the article republished above was written by Energy in Depth, an oil and gas industry site, with no input from him. He also penned an op-ed piece for The Daily Digger in response to this article, which can be read here: http://www.thedailydigger.com/2017/01/citizen-groups-play-important-role-in.html

Thursday, January 12, 2017

The legislature just made it harder for anyone to use local ballot issues to fight fracking, thanks to a bill rammed through the legislature, House Bill 463, which Gov. John Kasich signed Wednesday.

That's not the only problem that mars the 67-page Christmas tree, which passed Dec. 8. Reprehensibly, the bill also weakens Ohio's housing discrimination law.

As to the environment, HB 463 takes aim at attempts to propose county charters, or city or village ballot issues, that would ban fracking or any other local initiative that would run counter to statewide law (example: ballot issues to soften marijuana penalties).

HB 463 gives county Boards of Elections and the Ohio secretary of state power to decide if a municipal initiative or proposed county charter fails to follow proper procedures for reaching the ballot - or (this is key) tries to claim local control over powers the state reserves for itself. (A 2004 law gives the state sole authority over oil and gas production.)

If a ballot issue does either, HB 463 allows elections boards and the secretary to keep it off the ballot.

In 2013, one of the largest natural gas reservoirs within the Utica shale formation was discovered in Monroe and Belmont County. Estimates peg the deposits at around 150 billion cubic feet.

Those two counties are in what's known as the dry gas window and produce high volumes of pressurized natural gas that need little processing. They are home to Ohio's biggest wells and have emerged as Ohio's drilling hot spot.

The discovery quickly led to an acquisition rush in the area which is still ongoing. The Bureau of Land Management is slowly auctioning parcels for drilling, one of which Petrogas purchased last month.

According to data from Drilling Edge, natural gas production in 2013 was around 11 million MCF. In 2016 this number increased to approximately 200 million MCF.

As natural gas prices recover from 2015 lows, Petrogas expects drilling in the area to expand.

"We will do our best to make new acquisitions in Belmont and Monroe county and plan to participate in the next government auctions which tend to offer much better prices than purchasing acreage privately," said Mr. Huang Yu, CEO of Petrogas Company.

"Energy prices continue going up, making this investment more attractive by the day for the company. Once we have accumulated a sizeable number of parcels in our portfolio we will look at beginning a drill program to extract liquified gas from our leases," added Mr. Yu.

The Federal Energy Regulatory Commission has decided against an alternate route for the NEXUS Pipeline that would have moved construction through southern and western Wayne County instead of through Chippewa Township, and the news was bittersweet.

The FERC released the final environmental impact statement, acknowledging, “the projects would result in some adverse environmental impacts; however, these impacts would be reduced to acceptable levels with the implementation of NEXUS’s and Texas Eastern’s proposed mitigation measures and the additional measures recommended by staff in the final EIS.”

The pipeline, if approved, will cut through 6.6 miles of Chippewa Township.

Gary and Deb Adkins’ home is within 100 feet of the proposed pipeline in Chippewa Township, and they have opposed the project. Deb Adkins said she had just heard the news Wednesday, and she and her husband are going to have to look into it further to see what else can be done.

The pumping of waste from hydraulic fracturing operations into a closed Ohio injection well is expected to resume after a judge's ruling that the state's oil-and-gas regulator failed to consider a new plan after shutting down the well in 2014 because of two small earthquakes nearby.

Franklin County Common Pleas Judge Kimberly Cocroft ordered the state and well operator, American Water Management Services, to submit language for a judgment order to reopen the well in Trumbull County's Weathersfield Township, about 65 miles southeast of Cleveland.

Cocroft's ruling last month said the state had the authority to shut down the well after earthquakes were detected below ground in July and August of 2014. But the ruling said the Division of Oil and Gas Resources Management should have allowed American Water to resume operations after submitting a plan that called for pumping brine at lower pressures and volumes. At least 20 other small seismic events were recorded in 2014 near the well before it was closed.

The ruling noted that American Water was operating within state guidelines when the shutdown order came.

Another day, another pipeline protest by "keep it in the ground" activists.

On Dec. 8, a dozen people swarmed a construction site near the Hudson River in an attempt to halt construction of Spectra Energy's AIM pipeline, which is designed to carry natural gas from New Jersey to Massachusetts. The protesters, who call themselves the HudsonStand12, were arrested and charged with criminal trespass and resisting arrest by authorities in Cortlandt, New York.

Those arrests come on the heels of the months-long protests against the Dakota Access oil pipeline project in North Dakota, which, of course, followed the brouhaha over the Keystone XL pipeline.

Climate activists are now hoping to block oil and gas pipeline projects across the country due to their claim that we must keep all hydrocarbons in the ground to avert catastrophic climate change. Those same activists repeatedly claim we don't need fossil fuels because we can rely solely on wind and solar energy.

But while they obsess over our carbon footprint, climate activists don't give a fig about the land-use footprint of renewables. Indeed, the dirty truth about "clean" energy is that it requires shocking amounts of land. In a recent report for the Manhattan Institute, I show that using wind and solar energy to reduce domestic carbon dioxide emissions by 80% by 2050 (80 by 50) will require covering about 287,700 square miles of territory — an area about the size of Texas and West Virginia combined.

Wednesday, January 11, 2017

The first weekly permitting report from the Ohio Department of Natural Resources in 2017 shows that it was a slow week of activity.

Only one new permit was issued during the week of January 1 to January 7. It went to Eclipse Resources for the Duane Weisend East 8H well in Noble County.

While permitting was slow, the Utica rig count remained at 23 for the second straight week - which means that the first week of 2017 already matched the highest rig count of all 2016. 2,343 permits are now issued, 1,883 wells have been drilled, and 1,472 wells are producing.

It was one of 13 tremors between March 17, 2011, and Jan. 13, 2012, which the Ohio Department of Natural Resources determined were caused by a 9,000-foot-deep D&L Energy Inc. injection well on Ohio Works Drive in Youngstown, which was used for brine disposal.

Brine is the salty, chemical-laden water that returns to the surface after the hydraulic-fracturing (fracking) process that unlocks natural gas and oil deep underground.

Before that series of Youngstown earthquakes began, no quakes centered in the Mahoning Valley had ever been recorded.

“I believe we’ve had no felt [earthquake] events in [Ohio] injection wells since the Youngstown event,” of Dec. 31, 2011, said Jim Zehringer, director of the Ohio Department of Natural Resources, whose Division of Oil and Gas regulates the drilling industry.

Friday, January 6, 2017

President-elect Donald Trump intends to hit the ground running on energy and environment policy. Trump already has an expert team in place drafting important policy changes from the Obama administration. Here are 10 likely changes that will impact energy production, energy use, and the U.S. economy.

1. Goodbye to the Clean Power Plan. The EPA’s Clean Power Plan was political poison for Democrats in the November elections. In 14 Senate races highlighted before the elections by the liberal website Mother Jones as being especially important in the global warming debate, 11 were won by candidates opposing the Clean Power Plan. The Clean Power Plan was decisively damaging to Hillary Clinton in Great Lakes battleground states like Pennsylvania, Ohio, Michigan, and Wisconsin. The American public supports government taking some steps to reduce the carbon dioxide emissions that cause some global warming, but Donald Trump realized expensive, highly partisan, top-down restrictions are an unpopular prescription. Expect Trump to fulfill his campaign promise to retract the Clean Power Plan immediately upon taking office. Don’t be surprised, however, if he extends an olive branch to people concerned about global warming by offering alternative policies that address carbon dioxide emissions in a more affordable, fair, free-market manner.

Chesapeake Energy Corporation (NYSE:CHK) had a massive 1.1 million net acre position in the Utica Shale as of its October 2016 update. In light of its 2015 midstream agreement, rising domestic gas prices, and additional takeaway capacity coming online in 2017, this is a key asset to watch when considering investing in Chesapeake Energy Corporation.

Investors should note that Chesapeake Energy did sell off 37,000 net acres in the Utica, along with 22 producing wells and five DUCs (drilled but uncompleted wells) in Q4. During the first half of 2016, those producing wells pumped out an average of 24 MMcf/d of natural gas. That acreage was centered around Columbiana County in NE Ohio and Beaver County in Western Pennsylvania, outside of Chesapeake's core Utica focus in Eastern Ohio.

During the third quarter of this year, Chesapeake Energy Corporation pumped out 127,000 BOE/d net from the Utica. That was down 10,000 BOE/d from Q2 2016 but up 21,000 BOE/d versus Q3 2015. With two rigs now operating in the Utica as of Q3, the upper-end of its guidance over the next couple of years, Chesapeake's Utica output (particularly dry gas) should perk up.

The weekly Utica shale permitting report from the Ohio Department of Natural Resources covering the week of December 25 to December 31, 2016 shows five new permits being issued as the Utica rig count climbed by one.

Four of the five new permits listed on the report are for sites in Guernsey County, while the remaining permit was for Monroe County. All five permits were issued to Eclipse Resources.

The Utica rig count rose to 23, matching the highest level it had reached in 2016. 2,342 permits have now been issued, with 1,882 wells drilled and 1,472 wells producing.

Thursday, January 5, 2017

Ohio Gov. John Kasich on Tuesday vetoed legislation that would have expanded a sales tax exemption for oil and natural gas producers, saying it would have cost the state too much and unfairly favored the industry.

Using his line-item veto power, the Republican governor struck down the provision in SB 235, lame-duck legislation that also changes unemployment compensation law, among other things. The veto stops the Republican-controlled legislature's efforts to expand a sales tax exemption on equipment used "directly" in producing oil and gas to cover all production-related purchases.

"The exemption in this item goes well beyond the direct use exemption for exploration and production and would result in a situation where oil and gas companies would be exempt from sales tax on almost everything they purchase," Kasich said in his veto message. "This new, broadened exemption from the sales tax would create future annual revenue losses to the state, counties and transit authorities in the tens of millions of dollars."

A thorough review of the U.S. Environmental Protection Agency’s (EPA) 666-page final drinking water report further solidifies what EID reported last week: the substance of the report — its actual data — reinforces the 2015 draft report’s topline conclusion that there was no evidence of “widespread, systemic impacts” from fracking.

EPA, of course, opted to delete the latter language from its final report. But comments by EPA Deputy Assistant Administrator Thomas Burke reveal that remains EPA’s final conclusion. For instance, he recently told CBS This Morning that “the overall incidence of impacts is low.”

Of course, there is absolutely no difference between saying the “the overall incidence of impacts is low” and there are “no widespread, systemic impacts.” But unfortunately that fact was lost on much of the media, leading to several misleading headlines, including:

Not only did the EPA not reverse course, its claim of “data gaps” was essentially an admission that after six long years it couldn’t turn up a shred of evidence proving the oft-repeated activist claim that fracking is an inherent threat to drinking water. To illustrate this, EID decided to revisit its list of 10 important facts to know about the EPA draft report that we published last year. Of course, our review shows that, despite some misleading headlines, literally nothing regarding the actual substance or data of the report have changed. And in fact, EPA’s study officially closes the book on the environmental activists’ deliberate misinformation campaign. Let’s review.

Fact #1: Even with greatly expanded definition of hydraulic fracturing and drinking water, EPA still finds no evidence of widespread or systemic contamination

Both the draft and final versions of the EPA report lump five separate activities related to the fracturing process under one all-encompassing term that EPA refers to as the “hydraulic fracturing water cycle.” As the following graphic from the report illustrates, just one step of this cycle — well injection — directly involves the actual fracking process.

Furthermore, most of the EPA’s well injection chapter focuses on well casing issues, which of course, are not exclusive to fracking. Water acquisition, chemical mixing, produced water handling and wastewater disposal and reuse are all steps of the oil and gas development process regardless of whether a well is hydraulically fractured or not. Forbes contributor Robert Rapier touched on the absurdity of this broad definition in a recent op-ed,

“The EPA report goes out of its way to blur the lines as well by lumping it all into ‘activities in the hydraulic fracturing water cycle.’ By doing this, if a guy driving a truck filled with fracking chemicals has a wreck, it’s a ‘fracking issue.’”

The fact that EPA has indeed expanded the definition of fracking for the purposes of its report (more on the reasons why in a bit) has been widely underreported. Also underreported is the fact that EPA studied groundwater and surface water impacts in its final report, and also expanded the definition of drinking water, as Bloomberg notes,

“For decades, the agency has defined ‘drinking water resources’ as any water with total dissolved solids below 10,000 milligrams per liter, on the assumption that such water could someday be cleaned up enough to be drinkable. U.S. water utilities typically restrict drinking water to less than 500 mg/L total dissolved solids.

“A drinking water resource, by EPA definition, could be too deep, too small or trapped in rock too solid to make recovery practical, in addition to being too saline for water utility standards.”

In other words, for the purposes of this report, EPA considers just about any water source a potential “drinking water” source — even if it contains twice the amount of dissolved solids as water considered potable by U.S. water utilities. From the report’s executive summary,

“Consistent with the Study Plan (U.S. EPA, 2011d), drinking water resources are defined within this assessment as any groundwater or surface water that now serves, or in the future could serve, as a source of drinking water for public or private use. This definition is broader than most regulatory definitions of ‘drinking water’ to include both fresh and non-fresh bodies of water that are and could be used now or could be used in the future as sources of drinking water (Chapter 2).”

It is for this reason that EPA claims it identified injection of fracking fluids into “drinking water” as an example of a “water impact” from fracking, including examples in such western states as Wyoming (Wind River Basin), California (Kern County), Colorado (Raton Basin) and New Mexico (San Juan Basin). Each example is very misleading due to the fact the water tables impacted are not actually used for drinking water and are only considered drinking water aquifers by EPA’s admittedly drastically expanded definition.

Even so, EPA offers no claim of drinking water contamination (because they aren’t actual drinking water aquifers) and notes that fracking is rarely conducted in such formations,

“This analysis, in conjunction with the result from the Well File Review, suggests that the overall frequency of this occurrence is relatively low, but is concentrated in particular areas of the country.”

EPA also broadens the definition of “impacts” for the purposes of this report, explaining that the term “impacts” should not necessarily be equated to contamination (which, of course, it has been).

“We define impacts broadly in this assessment to include any change in the quantity or quality of drinking water resources.”

So to sum up, EPA expands the definition of the term fracking, drinking water and impacts for the purposes of its report. And it still foundno evidence of widespread impacts.

This might have been a bigger story had the agency not steered the media toward its desired narrative by claiming “data” gaps prevented it from revealing the smoking gun activists have been hoping for.

Fact #2: Rare instances of groundwater impacts still not due to the fracking process

As E&E News recently noted, EPA also expanded the definition of fracking to include components that it already knew had impacted water,

“There are few, if any, examples of the specific practice of hydraulic fracturing fluid rising through rock to contaminate groundwater. But by broadening its examination to include hydraulic fracturing ‘activities’ and the full ‘water cycle’ of fracking, EPA ventured into areas where water contamination is already a widely acknowledged concern.”

But bottom line, as E&E noted, “there are few, if any examples” of fracking fluid rising through fractures at depth into water tables, and the EPA findings did not change that fact. Several excerpts from the final report illustrate exactly why this is the case.

EPA notes that the possibility of fluids rising through fractures into water tables during the hydraulic fracturing process is remote,

“…due to the very low permeabilities of shale formations; this means that hydraulic fracturing operations are unlikely to generate sufficient pressure to drive fluids into shallow drinking water zones.”

EPA notes the possibility of fluids rising through fractures into water tables is even more unlikely following fracking operations,

“In deep, low-permeability shale and tight gas settings and where induced fractures are contained within the production zone, flow through the production formation has generally been considered an unlikely pathway for migration into drinking water resources (Jackson et al., 2013d).”

“Some natural conditions could also create an upward hydraulic gradient in the absence of any effects from hydraulic fracturing. However, these natural mechanisms have been found to cause very low flow rates over very long distances, yielding extremely small vertical fluxes in sedimentary basins. These translate to some estimated travel times of 100,000 to 100,000,000 years across a 328 ft (100 m) thick layer with about 0.01 nD (1 . 10−23 m2) permeability (Flewelling and Sharma, 2014).”

Fact #3: Incidence of groundwater being impacted by development activities were still “small”

The EPA draft concluded that, even taking into account all five steps of the hydraulic fracturing “water cycle” that the number of identified water impacts “was small compared to the number of hydraulically fractured wells.”